Replacement cost is the cost of replacing an existing asset with a substantially identical new modern equivalent asset. When calculating depreciated replacement cost, it is expected requires that physical deterioration be taken into account and that optimisation for obsolescence and relevant surplus capacity occur. In other words, replacement cost is the cost and overhead that would be incurred in constructing an improvement having the same utility as the original, without necessarily reproducing exactly the same characteristics of the property, but using today’s materials, labour, and building techniques. In other words, replacement cost represents the cost to create an equally desirable substitute property.
